Bernanke on Fed Disagreements, Group Decision Making

Sep 30, 2010 5:33 pm ET

By Luca Di Leo and Jon Hilsenrath

Federal Reserve Chairman Ben Bernanke acknowledged deep divisions at the central bank about how to handle today’s complex economic problems. But he also welcomed the dissent and said it might actually lead the Fed to better decisions.

“There is disagreement, but ultimately the committee finds a consensus and we work together to figure out what the right thing is for the country,” Bernanke said in reference to the Federal Open Market Committee, the Fed’s policy-making body which consists of its board of governors in Washington and 12 regional Fed bank presidents.

He was speaking at an unusual gathering at the Fed with high school and community-college teachers, including hundreds beamed into the Fed’s Washington boardroom by teleconference from Fed buildings around the country.

Fed officials have been torn about whether they should do more to spur a disappointingly slow recovery. Officials in several speeches this week offered divergent views on whether the U.S. central bank should ramp up its purchases of U.S. Treasury bonds to drive down long-term interest rates. Some want to take that step, but others fear it might be ineffective or lead to inflation or asset bubbles by injecting too much money into the financial system.

Bernanke leapt at a question about divisions inside the Fed to offer a window into his own thinking on decision-making — and his style of leadership.

“Disagreement is a good thing. It creates new ideas. It forces people to look at all sides of the question,” Bernanke said, pointing to research from university colleagues showing that for certain complex decisions, committees do a better job than a single person.

Princeton University professor Alan Blinder (who is also a former Fed vice chairman) and University of California, Berkeley professor John Morganconducted experiments on group decision-making with undergraduate students. In one case, they were given the task of guessing how many blue balls and red balls were in an urn and the groups outperformed individuals.

“It’s really important to hear both sides of the story and that we use critical thinking to decide what’s right,” the Fed chairman said.

The advice to teachers shined some light into Mr. Bernanke’s own consensus-driven leadership style. He isn’t sweating the clamor inside the Fed these days. That might also be because he knows the group will go with him in the end.